Dividend stock portfolio performance review

Since we’re halfway through the year, I thought it would be worth reviewing my dividend stock portfolio performance. I also compare my portfolio’s performance to some mutual funds to see how I fare; although the primary aim of my portfolio is dividend income.

My Dividend Stock Portfolio performance

Without further ado, here’s a graph of the value vs. cost-basis of my dividend stock portfolio since I first started it in late 2011.

Overall as of 30 June 2014, the portfolio has a market value of $20,714 with a cost-basis of $17,064.

My portfolio has generated $700 in dividends since I bought the first stock in April 2011. And while all dividends were re-invested, I manually chose where to re-invest the dividends and did not use an automatic DRIP.

The total return of the portfolio is 21.4%, as the $700 dividends it produced meant I added $700 more capital to the portfolio than I could have otherwise.

So I’m very happy with the performance so far!

But what if…I’d put the money into an index fund instead?

If you’ve looked at my Dividend Income Portfolio, you’ll know that I hold mutual funds as well as individual stocks. In fact, individual stocks are a small portion of my overall portfolio since I started with funds before gaining confidence to invest in individual stocks. I still continue to add to them in addition to buying stocks.

As an exercise, and hopefully to learn something, I asked myself “What if I had simply bought a mutual fund instead of stocks – how would the dividend payments compare?” So I picked two Vanguard mutual funds for a comparison; one is aimed at dividend stocks, the other represents the S&P 500 index.

Note: Always know the Expense Ratio of any mutual funds you currently hold or are considering: if it’s above 0.5% you might want to review your options and find a cheaper index-based one.

I owe this fund already as you can see on my Portfolio page. I made my first purchase in October 2012 and have been adding to it ever since. It’s commission-free to buy and sell and it has a low Expense Ratio of 0.19%. It consists of 392 dividend paying stocks, although the ten largest positions represent about 35% of its total assets. The top ten stocks if you’re interested are (highest first): Apple, Exxon, Microsoft, Johnson & Johnson, General Electric, Wells Fargo, Chevron, Procter & Gamble, JPMorgan Chase and Verizon Communications. All great dividend stocks and you can view the remainder of its holdings here.

I do not own this fund, nor do I have any plans to invest in it. That said, it represents the S&P 500 index with a very low Expense Ratio of 0.05% and is likewise commission-free to buy and sell. It consists of 503 stocks, and the ten largest positions represents 18% of net assets, so it’s more diversified than VHDYX. The top ten stocks are (highest first again): Apple, Exxon, Google, Microsoft, Johnson & Johnson, General Electric, Wells Fargo, Chevron, Berkshire Hathaway and Procter & Gamble. All great companies but including some non-dividend stocks. You can view the full list of its holdings here.

How do they compare?

So to do the comparison, I spent a fair amount of my vacation today listing out the date of every stock purchase I’ve made and its amount. I made the mother of all spreadsheets with price and dividend history of the two funds above from Yahoo Finance and combined that with the stock purchase dates and amounts. I used this data to calculate how many shares of each fund my historical stock purchases would have bought on each date, and summed the total number of shares at the end of each month. At that point it was easy to calculate the market value for each month.

But enough about my Excel machinations; what are the results?

The S&P Index fund wins with the highest value, followed by VHDYX and my Portfolio is last. Oh the humanity! But it’s a fairly close race and my stocks have been catching up slowly this year.

Here are the results in a table

Fund

Cost Basis

Market Value

Return

My Portfolio

$17,064

$20,714

21.4%

VHDYX

$17,064

$20,851

22.2%

VFIAX

$17,064

$21,339

25.1%

I was expecting VFIAX to be highest in value as it’s tilted towards total return than dividends. In the current market where stock prices seem to be outpacing economic and company growth, I think this would give the edge to a fund like VFIAX. It was very close between my stocks and VHDYX however, only $100 or so difference.

But what about the dividends?

Ok, so you’d expect VHDYX to pay more dividends than VFIAX right? Let’s take a look…

And you’d be right. At least this time, my portfolio beat VFIAX, but still lost to VHDYX. For the first year of my portfolio, I held just one position in Microsoft so the dividend income was quite low. It was only in the later portions of 2012 when I started investing in a wider selection of stocks and you can see my dividend income overtake VFIAX by April 2013.

The total dividend amounts are

Fund

Dividends

My Portfolio

$700

VHDYX

$769

VFIAX

$565

A couple of things to keep in mind:

The results are using $700 of dividends re-invested. Since VFIAX didn’t produce $700 in dividends, its real cost basis and value would be lower as there would be less money available to invest in the first place. Similarly for VHDYX which would increase in cost basis and value as it would have had an extra $100 to re-invest.

The funds may have distributed capital-gains back which are not included in this analysis. This would have increased the cost-basis and final value of each fund.

Lessons Learned

So from doing this analysis, I’ve learned and confirmed a couple of things

1. Mutual funds aren’t necessarily a bad thing and can have a place in a dividend income portfolio with good dividend yield.

2. To beat VHDYX in dividend yield, I’ll have to increase my portfolio yield. Hopefully my recent decision in my Charter to buy stocks with yields between 2% and 6% will prevent me from buying low yield stocks that I’ve purchased in the past.

Quote of the day

It’s not what we eat but what we digest that makes us strong; not what we gain but what we save that makes us rich; not what we read but what we remember that makes us learned; and not what we profess but what we practice that gives us integrity.

Great analysis. I have some ETFs in my portfolio focused on different sectors and though it is very small compared to the individual stocks, I always wonder it is better/worse to get ETFs compared to individual stocks.

Yes I wonder the same thing and I also have two sector ETFs (VDE and VPU) as a small component in my portfolio.

ETFs give you much broader exposure to the market – for example VDE consists of 165 stocks in the Energy sector. Not all of those stocks will pay dividends so you should always be able to get better dividend income by picking individual stocks. VDE’s yield is about 1.85% currently vs. the 3.2% paid by XOM and even higher yields from KMI.

But it’s risk vs. reward and your confidence in beating the market – ETFs represent the average and so are relatively safe. I think dollar cost averaging and buying sector ETFs regularly is a valid strategy and may bring a higher total return over the long term compared to individual stocks. But for current income and dividend growth you have a lot more control with individual stocks if they’re good quality companies at good valuations.

I’ve never commented on a blog before but I had to on this one. I’ve contemplated for a long time about VHDYX but I’ve never seen anyone use this as an income strategy. I’ve wanted to this for a long time. How do you feel this works compared to getting buying individual dividend stocks?

Also, looking at the same international fund as you.

Anyway, if I could contact you via email that would be awesome.
Your stuff is fun to read cause it comes so close to what I am doing or want to do.

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